Complete HarpWeek Explanation:This March 11, 1908 cover of the Democratic humor magazine, Puck, warns that the poor state of the American economy could be a major issue in the fall presidential campaign. Republicans, represented by a clumsy elephant, have mishandled the economy, stepping on and breaking the workingman’s “Full Dinner Pail”. The image refers to the economic effects of the Panic of 1907, the first major banking panic since one in 1893 began a four-year national depression.

In early 1907, the stock market began declining, while credit tightened from rising interest rates. Without a central bank, there was no effective way to expand the money supply. That summer, the weak economy caused several businesses and brokerages to declare bankruptcy. A banking panic was sparked on October 16 with the failure of stock speculator F. Augustus Heinze’s attempt to buy controlling shares of the United Cooper Company. He was forced to resign as president of the Mercantile National Bank, prompting a run on its deposits, as well as banks affiliated with his associate, C. F. Morse. The situation led to the public revelation that many bank, brokerage, and trust company boards of directors had overlapping memberships.

The involvement of Knickerbocker Trust Company president Charles Barney in Heinze’s stock market scheme led the National Bank of Commerce to announce on October 21 that it would no longer clear the checks of Knickerbocker, the third largest trust company in New York City. Two days later, The New York Times identified Barney as a director of the Trust Company of America, the second largest in the city, and exaggerated the run on its deposits (only $1.5 million at the time). The story produced a genuine run over the next two weeks, during which the Trust Company lost $47.5 million of its $60 million deposits.

On the evening of October 21, J. P. Morgan, president of a leading investment bank, J. P. Morgan and Company, assembled a team of executives from various bank and trust companies. Over the next three weeks, they worked to halt the spread of the panic by transferring money from strong banks to weak ones, buying stock in depressed but sound companies, and finding foreign sources of credit. The administration of President Theodore Roosevelt acted by having Treasury Secretary George Cortelyou deposit almost $40 million from the U.S. Treasury into federally chartered national banks in New York City.

In order to keep the major brokerage firm of Moore and Schley from collapsing and renewing the panic, Morgan arranged to have his U.S. Steel Corporation buy controlling shares of the Tennessee, Coal, Iron & Railroad Company from the brokerage. On November 4, President Roosevelt controversially agreed not to undo the deal through an antitrust lawsuit. Morgan earned praise for his crucial role in stemming the tide of the panic, but was criticized for profiting from the misfortunes of other firms.

Although the economy still appeared shaky when this cartoon was published in early 1908, the signs of recovery were soon evidence in the spring and summer. Nevertheless, the Panic of 1907 prompted calls for monetary reform, which resulted in the Aldrich-Vreeland Act of 1908 and the establishment of the Federal Reserve System in 1913.